ECONOMICS

Economics

Economics

1.

Purchase= 100

Cost of walking= 10x ( x is the number of kilometers to and from shop)

Marginal Cost= 60 (equal for all the shops)

Purchasing Power:

Total Price paid by customer= sum of the purchase + cost of walking

100 + 10x = 100 + 10x

According to SSNIP model, when a customer is making a purchase, his or her purchase will include the purchase price plus the cost of traveling to obtain that product. In a competitive market scenario where sellers are competing each other on the basis of price, the seller who is situated far from the density population will be charging lower price. Consumers who has less cost of traveling will be preferring to buy goods from those sellers who are far away from thei destination (as they would be offering low price as compared to a nearby seller).

(a)The SSNIP test is a tool in product market definition in which a minimal possible sub-set of products is taken for analysis of finding out relevant product market. It is seen if a theoretical HM, if having an option, will increase the prices of the products in a non-transitory way. Or is it possible that even if the HM, producing those goods , which fall in the subset referred to above, raises the prices, the market forces would ensure that prices do not remain remunerative for this HM. This can be on account of a number of factors. Either the consumers may start sourcing the products from alternate sources, or on account of availability of other substitutable goods, it will not be remunerative, in the long run, to keep on manufacturing the concerned products in the market.

When the marginal cost of production is 60:

100 + 10x + 60= 100 + 10x + 60

(b)The first and most important step in defining relevant markets for the purpose of applying competition law is to look at demand substitution by customers. The SSNIP1 - test is used by competition authorities in a large number of jurisdictions for analyzing demand substitution and defining relevant markets, in the product space as well as in the physical space. The emergence of the “Hypothetical Monopolist Paradigm” and the SSNIP-test is chronicled in an article by Werden (2002). A large literature has evolved on the definition of relevant markets, well surveyed in e.g. Massey (2000), Kaserman and Zeiser (1996), Simons and Williams (1993) and Scheffman and Spiller (1987). Geographic market definition has mostly been done by looking at shipment flows, starting from Elzinga and Hogarty (1973), price correlations and cross price elasticity as used by Slade (2003), Perez Agundez et al (1999) or causality tests. A circular market configuration is referred to in Werdens (1984) response to a critique by Boyer (1984) of the US Merger Guidelines. The SSNIP -test is not used systematically, neither in product market definition nor in geographical market definition, probably because the data requirements for estimating cross price elasticity can be rather large as discussed by Haldrup et al (2003). By some simple and reasonable assumptions we avoid ...